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October 18, 2018, Trial News

SCOTUS questions whether transportation workers must arbitrate claims

Mandy Brown

In oral arguments before the U.S. Supreme Court regarding whether §1 of the Federal Arbitration Act—which exempts transportation workers’ “contracts of employment” from the statute—applies to independent contractors, the justices challenged a trucking company’s argument that the §1 exemption applies only to contracts with employees. With most of today’s transportation workers classified as independent contractors, the case could significantly impact the transportation industry.

In oral arguments before the U.S. Supreme Court regarding whether §1 of the Federal Arbitration Act (FAA)—which exempts transportation workers’ “contracts of employment” from the statute—applies to independent contractors, the justices challenged a trucking company’s argument that the §1 exemption applies only to contracts with employees. Throughout the argument, the justices often referred to the FAA’s text and the ordinary meaning of “contracts of employment” at the time the statute was passed. With most of today’s transportation workers classified as independent contractors, the case could significantly impact the transportation industry. (New Prime, Inc. v. Oliveira, No. 17-340 (U.S. oral arg. Oct. 3, 2018).)

Dominic Oliveira was offered a job with New Prime, an interstate trucking company, as an independent contractor after graduating from the company’s driver apprenticeship program. Oliveira worked for New Prime both as an independent contractor and as an employee when his status later changed. He sued the company in federal district court in Massachusetts, alleging New Prime violated the Fair Labor Standards Act and the Missouri minimum-wage statute by failing to pay truck drivers minimum wage, and also brought a class claim for breach of contract or unjust enrichment.

New Prime moved to compel arbitration under the FAA, which Oliveira argued did not apply to his work contracts. He also claimed that this issue was one for a court, not an arbitrator, to decide. The district court denied New Prime’s motion, and the First Circuit affirmed, agreeing with the plaintiff. The First Circuit also ruled that the FAA §1 exemption does apply to independent contractor agreements. The Supreme Court granted New Prime’s petition for a writ of certiorari in February.

The Court certified two questions for review: whether the FAA’s applicability should be determined by courts or arbitrators and whether the statute’s §1 exemption applies to agreements with independent contractors in the transportation industry. In response to questions from Chief Justice John Roberts and Justices Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor, and Neil Gorsuch, New Prime’s attorney, Theodore Boutrous Jr., seemed to concede that the first issue would be appropriate for a court to decide and that, in the words of Justice Gorsuch, before a court can “compel arbitration . . . it would have to satisfy itself that it had the power to issue such an order.”

The rest of the arguments addressed the second question, focusing on the FAA’s language. Justice Sotomayor emphasized that §1 does not say the exemption applies to contracts with employees; rather, the act states that the exemption applies to “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” (emphasis added).

Justice Gorsuch referenced the fact that when the FAA was enacted in 1925, the meaning of contract of employment “may have swept more broadly” and that a reasonable reader “at that time didn’t necessarily distinguish between independent contractors and employees with the degree of care that the law has subsequently come to use.” This point was included in Oliveira’s briefing, as well as supporting amicus briefs, including one filed by AAJ.

The main line of questioning directed at Oliveira’s attorney, Jennifer Bennett of Public Justice, by Chief Justice Roberts and Justices Samuel Alito and Elena Kagan explored how to determine whether an independent contractor falls under the exemption. Bennett explained how the FAA only exempts “a class of workers engaged in foreign or interstate commerce” and, therefore, the FAA exemption does not apply to contracts between companies for transport or shipping. The key question for a court to determine is “did the parties contemplate that the individual who is suing performed the work himself . . . or did they contemplate that it would be a company?” Only the former, Bennett argued, would be covered by the exemption, and this “inquiry would require very limited discovery, if any at all.”

“This issue of whether the §1 exemption applies to workers who are independent contractors is hugely important,” said Dallas attorney Gerson Smoger, who authored AAJ’s amicus brief. “This is the only exemption in the FAA, and today, the majority of truck drivers and other transportation laborers are independent contractors. If the Court interprets the exemption to apply only to contracts with employees, all of these workers would be forced into mandatory arbitration. But I think the Court is realizing that the statute does not support this interpretation.”

“As we described in the amicus brief, the FAA was passed before the New Deal, which is when a significant difference between the status and benefits afforded to employees and independent contractors developed,” Smoger continued. “But in 1925, ‘contracts of employment’ was routinely understood to include agreements with independent contractors, and we cited a number of cases showing that. New Prime’s position that ‘contract of employment’ only applies to employees is simply not supported by case law or the statutory language.”